The latest thinking from PwC on the issues that matter to government and the public sector.

Is the NHS up to the productivity challenges ahead?

14 March 2013

By Nick M Jones

The combination of increasing demand and a tightening financial envelope means that business as usual is no longer an option for the NHS. Our recent report with the Nuffield Trust – The anatomy of health spending – reviews NHS spending and productivity over the period 2003/04 to 2011/12 and finds cause for concern. While the NHS found the savings necessary in 2011/12 – making £2.85 billion of Quality, Innovation, Productivity and Prevention (QIPP) savings from acute providers – below these top-line numbers there are stark differences in financial and productivity performance.

Having a clear understanding of how to manage financial performance is critical to NHS providers. Worryingly, an increasing minority of NHS and foundation trusts are in deficit, with seven trusts reporting a deficit for three years or more and several having limited scope to resolve their difficulties due to financial commitments such as PFI contracts.

With little improvement in many organisations, increasing productivity remains a fundamental challenge for NHS and foundation trusts. Much of the savings so far have been driven by national initiatives – such as the government’s public sector pay policy – and there is little evidence of widespread local innovation or productivity improvements. With the number of staff falling, improving labour productivity is critical.

The research finds that NHS and foundation trusts with a larger proportion of doctors and other medically trained professionals are likely to have higher levels of labour productivity, despite the higher wage costs. This highlights the importance of investing in up skilling staff. Larger trusts also tend to have slightly lower labour productivity, suggesting the existence of diseconomies of scale in regard to labour with implications for hospital mergers.

While so far the NHS has managed to balance its books, overall a step change in productivity is needed if the efficiency challenges ahead are to be met.

At PwC we’re working with people across the health service and the public throughout 2013 to debate what the NHS will – and should – look like in ten years time when it reaches its 75th anniversary. Join the discussion at www.pwc.co.uk/nhs75.